Here’s Cannabis!

With this week’s windy bill-signing ceremony, celebration about New Mexico’s status as the newest recreational cannabis state is in full swing and will surely ramp up as the 4/20 holiday approaches. But it will still be a few months before people can freely partake and nearly a year before retail sales begin.

Between now and then, the state has a plethora of regulations to craft before the industry envisioned by the Cannabis Regulation Act takes root.

The Legislature adopted the act after efforts in six consecutive regular sessions (and decades before that) in which advocates attempted reform. Debate stalled out during the 60-day session that ended March 20, leading the governor to call lawmakers back for a special session that lasted less than 36 hours and concluded on April 1. In addition to the rules that establish a taxation and licensing structure, the governor also signed a bill mandating the automatic expungement of past criminal records for cannabis possession charges for an estimated 150,000 people.

The next milestone is the 90-day mark.

On June 29, it becomes legal for adults to possess cannabis and to grow it at home (with limits on both; see below). Next comes the state's issuance and acceptance of applications for producers in the fall. The head start on Sept. 1 allows those businesses the required five months or so to get a commercial crop of the plant from seed to flower and ready for sale.

While licenses are significantly less expensive for new businesses that plan to grow up to 200 plants, the state expects current medical cannabis growers and out-of-state operations to apply for licenses at the same time. Next, the Regulation and Licensing Department must craft and get public input on rules for how the complicated program will operate. That includes permits for another 11 kinds of related businesses, including retail storefronts; manufacturing of goods; and testing and research.

As department superintendent, Linda Trujillo was the face of the Lujan Grisham administration as cannabis reform grinded through the legislative process. Now that she's on the other side of it, her load gets even heavier. The new Cannabis Control Division in her department will have 51 employees when it's fully staffed. As of now, that number is zero. In the near future, she needs to hire a division director and general counsel.

"We are going to start at the top and we are going to have to go down as we get more resources. We don't have the luxury of waiting until the money becomes available….We are going to have to start now to get this up and moving," she tells SFR, noting lawmakers allocated $1.7 million for the new division in the special session and will need to revisit paying for the programs long-term in the next regular session.

A drafter from the Legislative Council Service will begin work soon on the voluminous administrative literature, but that's also supposed to happen in concert with a specifically prescribed advisory board that Trujillo must also appoint.

Gov. Michelle Lujan Grisham signs the Cannabis Regulation Act as (from left to right) Sens. Mimi Stewart, Katy Duhigg and Jerry Ortiz y Pino; Reps. Javier Martinez and Andrea Romero; and Emily Kaltenbach of the Drug Policy Alliance look on. (Julie Ann Grimm)

The much-amended section of the act creating the Cannabis Regulatory Advisory Committee stipulates that it must include three members who are designated by their positions (the chief public defender or designee; a municipal police chief appointed by the New Mexico association of police chiefs; a county sheriff appointed by the New Mexico Association of Counties) and 14 appointed by the superintendent of RLD from various groups or professional qualifications. They include a cannabis policy advocate and qualified patient; a representative of an Indian nation; and people with expertise in public health, regulating commercial activity for intoxicants, cannabis lab science, environmental science and small business development, among other qualifications.

There's no official process for putting one's name in the hat for a spot on the committee as of presstime, but Trujillo says that will happen soon.

As production starts to kick off, the state also has created a complicated task for itself in regulating supply and avoiding market saturation. The topic was one of the hotly contested portions of the new rules, with proposals from lawmakers ranging from an outright prohibition on state supply limits to the kind of unpopular "plant counts" that rule the medical program.

In the end, the RLD must consider the market demand based on average sales in other states paired with New Mexico's population. The department might also choose to determine production floors based on calculations from square footage, "canopy" or other means. That provision sunsets Dec. 31, 2025.

"A lot of eyes are watching how this number gets set," said Sen. Jacob Candelaria, D-Albuquerque, during the final legislative debate. In his professional life, Candelaria represents cannabis producer Ultra Health in a lawsuit against the health department's plant counts. Candelaria has publicly said he's a medical cannabis patient.

In one of the more dramatic moments of several he was a part of during the session, he waved a vape pen in the Senate chamber during debate and noted it contained 1 gram of indica cannabis "that will be vaped later by me…a lot of it—maybe all of it."

Sales tax revenue will also undergo a change related to the reform. First, on June 29, the act would put to rest longstanding debate about the legality of applying gross receipts tax to medical cannabis sales by creating a specific exemption in the tax code. Then the big one: After sales begin, a new excise tax and existing gross receipts tax levies will be applied to purchases by anyone not certified by the medical program.

While backers say the "sweet spot" for taxation that raises revenue for the state and still pushes the illicit market out of business is about 20%, the tax structure for new cannabis sales would put the final rate higher than that in Santa Fe on the day sales begin. The act would levy an initial 12% excise tax on top of local GRT (currently 8.4375% in the city limits) with an escalation of the excise tax up to 18% by 2030—meaning that the local rate would be 20.5% the first year and grow to 26.5%.

At first, local governments probably won't notice the change to cash flow, says Taxation and Revenue Department Secretary Stephanie Schardin Clarke. Revenue from the last medical taxable sales in June hits local coffers in August, and then new cannabis revenue from recreational sales—assuming they start in April 2022—won't be distributed until July of that year.

Schardin Clarke tells SFR she doesn't think any one jurisdiction will notice a big change from the loss of medical cannabis revenue, noting that those sales "aren't such a large portion of the economy that I think it would be in the noise. There is just so much variation in GRT revenues month by month anyway."

Once the new revenues start, the act calls for the state to return a third of its excise tax collections to local governments, and Schardin Clarke says the amounts would be pro rated based on the location where sales occur.

Locals are likely to notice those numbers, which analysts expect to grow over time. Tourism from Texas, for example, where cannabis remains limited to medical program participants, is expected to bump sales in Southern New Mexico, whereas Northern New Mexico counties are currently seeing bleed into Colorado for sales that will probably taper off and stay closer to home.

Revenue estimates vary as much as cannabis strains.

Analyst Kelley O'Donnell estimates statewide sales at $318 million in the first full year of legalization, growing to $800 million in year four and $1.1 billion by year five. But legislative budget planners predicted it will be much lower. For comparison, last year, Colorado sales hit the $2 billion mark.

Consumers aren't the only cross-border traffic the state anticipates. Colorado growers who have been at it since that state legalized adult use in 2012 have made no secret about expansion into New Mexico's new market. (Federal interstate commerce laws don't protect cannabis crossing state lines.)

Maggie's Farm, an organic outdoor business with storefronts in Manitou Springs and other locations, hired local lobbyist Mark Duran to advocate for the legislation.

"The Maggie's Farm team feels that the cultivation climate for growing marijuana in New Mexico is one of the best in the country," he said at a February committee hearing.

New Mexicans who want in on the first wave of commercial production should get ready by completing business basics, Trujillo says. Establishing a state tax ID, corporate structure and line of credit will make the licensing process smoother when it begins.

How Big is It?

"How much is 2 ounces? Is it like a handful?"

House Speaker Brian Egolf asked during a legislative committee hearing last month. "I have zero concept of how much volume. Is it the size of a baseball? I mean, how big is it?"

An ounce of cannabis flower overflows this one-cup measuring cup, shown in its actual comparative size next to a regulation baseball.

"Well," answered Emily Kaltenbach of the Drug Policy Alliance at the behest of bill sponsor Rep. Javier Gonzales, "One ounce could be the size of a small coconut—it could fit in your hand."

Not having a coconut handy, Egolf asked how much cannabis would weigh the same as, say, a pack of cigarettes.

In the spirit of education, SFR presents the following explanation.

About holding

Individuals over the age of 21 may possess 2 ounces of cannabis, 16 grams of cannabis extract and 800 milligrams of edible cannabis on their person or in their vehicle.

A pre-rolled joint might contain an average of 1 gram of dried flower. There are 28 grams in an ounce, so at 20 smokes per pack, that's about 2.8 packs to equal 2 ounces.

Edibles

They come in various strengths and dosages, but for the sake of argument, let's say you wanted a bag of gummies. At 10 mg of THC each, you can stuff 80 candies in your pocket.

Grow your own

The law allows not more than six mature cannabis plants and six immature cannabis plants per person with a household maximum of 12 mature cannabis plants. Provided that the maximum number of cannabis plants is not exceeded, the person may possess the cannabis produced by the cannabis plants notwithstanding any weight limits.

New Mexico’s Cannabis Timeline

April 12, 2021

Gov. Michelle Lujan Grisham signed a bill that taxes and regulates cannabis and another that wipes past cannabis convictions.

Soon

Taxation and Regulation Department to hire top-level workers for the new Cannabis Control Division (CCD); convene the Cannabis Regulatory Advisory Committee and begin drafting rules.

June 29, 2021

Cannabis possession and homegrow provisions of the law begin, allowing individuals over the age of 21 to hold on their person and/or in their vehicle 2 ounces of cannabis, 16 grams of cannabis extract and 800 milligrams of edible cannabis at one time, and to grow six mature plants per person or 12 per household. Public smoking is prohibited.

No later than Sept. 1, 2021

CCD accepts and begins processing license applications for cannabis producers, cannabis producer microbusinesses and properly licensed medical cannabis producers.

Last day for rules to be promulgated on a variety of regulatory topics, including product purity and safety tests; businesses licensure; inspection, recordkeeping, labeling; purchase limits; physical and cyber security. Rules must undergo public hearing and be available for review 30 days before such hearings occur.